Metro Board: Let the People Vote on Extending Sales Tax

How will Measure R+ revenue be spent? The same way Measure R money is spent. Image via Metro presentation to SCAG

Just after high noon, the Metro Board of Directors voted to place a ballot proposition on the November 2012 ballot to extend the Measure R sales tax’s horizon year from 2039 until 2069.  Los Angeles County voters passed the Measure R half-cent sales tax in 2008 to pay for a massive extension of the county’s transit system and specific highway projects.  The measure still needs approval from the full State Senate and Governor Brown before going to the ballot.  Once on the ballot it needs a two-thirds vote of County voters.

The vote was not unanimous.  Of the thirteen member board, several speakers spoke and voted against the proposal.  L.A. County Supervisor Mark Ridley-Thomas referred to the proposal as “way premature in the balance of our priorities.”  While Supervisor Don Knabe lamented that extending the sales tax would give too much power, and funding, to Metro.  “Once you give the agency an open checkbook…you lose the discipline.”  You can read Knabe’s full statement, here.

In order to increase support for the proposal both with the Board and with November’s voters, Board Member Richard Katz, an appointee of Mayor Villaraigosa, ammended the original motion which would have left the sales tax open ended.  Instead of relying on voters to repeal the extension at some future date, the current plan would expire in 2069.

Which is not to say that nobody was in favor of the proposal.  Supervisor Zev Yaroslavsky, Villaraigosa, Lakewood Mayor Diane Duboise, Katz and Director John Fasana all spoke in favor of the motion to allow the extension on the fall ballot.  They were bolstered by testimony from Move L.A., the National Resources Defense Council and the Sierra Club.

As expected, the Bus Riders Union formalized their opposition.  Eric Roman, the BRU’s communications director, kicked off a team of speakers in yellow by arguing, “There’s something wrong with building a coalition by promising things to various parts of the county while ignoring the needs of the actual riders.”  The BRU argues that such a large tax should focus on keeping fares low for bus riders and increasing bus service before funding rail projects or highway projects.

Also speaking in opposition was Damien Goodmon and a group of residents concerned with an at-grade Crenshaw light rail line and its impact on local business.  Residents and leaders from the Santa Clarita Valley concerned that they weren’t receiving their fare share of local return and allocated funds.

There were four ammendments that drew major debate.

Remember me? Supervisor Don Knabe does.

The first was by Supervisor Ridley-Thomas who motioned to delay the vote to make certain there was support for the measure before Metro spent $10 million to place it on the ballot and “educate the public.”  The motion was rejected.  However, during debate Supervisors voiced unhappiness with Metro’s “educational pieces” mailed to voters in 2008.  To alleviate these concerns, Supervisor Yaroslavsky authored and passed an amendment requiring all “educational materials” for the ballot proposition to be reviewed first by the Board of Directors.

There was a moment of unintentional levity when Supervisor Yaroslavsky submitted a friendly-ammendment to the original motion that fixed the “many grammar and formatting errors” of the motion.  The Supervisor complained the motion sounded as though it were written by a computer, not a human and borrowed Katz’s I-Pad to fix the motion and email it to the Board secretary to be shared with the staff.

A more significant motion will be added to the proposal next month.  Fasana authored a motion that would allow the Board to shift funding from one project to another within a sub-region, even if it were for a different mode of transportation.  Supervisor Knabe, while boosting the motion, showed how such a motion could be a problem.  “We could take savings from the (Gold) Line and spend it to expediate the 710 expansion,” he summarized.  Because this is a major policy change, it requires a public hearing and public notice.  A vote on this motion was tentatively scheduled for the July Board Meeting.

  • Davistrain

    Having the tax expire in 2069 rather than be “open ended” is certainly “kicking the can down the road” to the max.  Those of us who can ride all day for $1.80 (i.e. old folks like me) don’t have to worry about that provision; even my brother’s grandson will be eligible for senior-citizen fares by then.  2069 is getting into science-fiction time.

  • zstern

    If you just look at the years it is easy to say huh?  2069… who cares?  But what this really is doing is allowing Metro to raise more money today (in 2012) because they can show financiers that they will have revenue now from 2039-2069. 

    The question becomes is the cost of raising that money earlier then when it is actually received (the interest payments to be paid) greater or less than the economic cost to not accelerate these projects?

    Given the tremendous need for transit now in certain parts of the county, I tend to believe the economic cost every year of not having certain projects done is greater than the additional cost of raising money earlier.  I would like to see if any sort of analysis like this has been done. 

    I think supervisor Ridley-Thomas and Knabe’s comments were valid – but I think they could be refuted with a strong financial analysis mentioned above. 

    The BRU and others speaking out against certain projects not being included or certain areas being neglected are focusing on their immediate community and not the overarching needs of the county (which is what Metro is focusing on).

  • Joseph Dunn

    It figures that the BRU and Damion Good(how good is he)man would oppose to this.  2 idiots who think like pie in the sky and who JUST LOVE to be caught in traffic.  Buses don’t cut it. 

  • Anonymous

    It hardly matters what I think since I don’t live in LA County (and I guess it wouldn’t even matter if I did), but I would not vote for this. I supported Measure R in whatever way I could from afar but I do not want to blindly support this extension.

    It’s not that I necessarily oppose the idea of a tax for transit, but I think Measure R 1.0 needs to prove itself a bit more before the voters are asked to extend it again. The biggest thing that bothers me, however, is that they want to borrow against funds so far into the future. It’s the inter-generational issue that bothers me.

    I thought that was the plan with 30/10 (AKA America Fast Forward) with the original Measure R. What happened? People accuse politicians of getting an inch on taxes, and taking a mile, and coming back to the trough for more. Well, this is what this feels like. A lot of promises were made about borrowing against Measure R to accelerate transit projects, and it didn’t happen. Okay, fine, but how can we be sure these promises will be kept if Measure R+ passes?

    There’s so much uncertainty about everything these days. I think this idea should be shelved until 2014.

  • DJB

    It’s going to be a tough sell. Measure R is only a few years into its 30-year term and most people won’t understand that Metro’s trying to extend the tax so that they can use it as a revenue stream to borrow against (that’s really wonky and esoteric, and thus hard to sell). Plus, if the whole additional amount is pledged as a revenue stream to repay a loan, does that mean that it will take twice as much money to support the same package of projects, or that there will be new projects funded by this? If there will be new projects, what are they, and when and where will they be built?

    When would this get to the ballot? It’s probably too late for this November, which is good because I buy Jerry Brown’s argument that having 10 different taxes on the ballot reduces the likelihood that any one of them will pass, and his tax is the most important one to pass for the well-being of the State right now.

    One last point is that it’s funny how we’re talking about extending Measure R, which isn’t even necessary to build the Measure R project list (just to built it faster perhaps), while there is NO statewide tax to pay for High Speed Rail, which is the #1 obstacle to actually building it.

  • DJB

    Heh heh, oops, should have read more carefully. Putting this on the November ballot is a mistake. The State is talking about lopping 3 weeks off the K-12 school year. Brown’s tax has to pass.

  • Juan Matute

    One of the big issues with Measure R is that the revenue forecast and funding commitments were completed in 2008, based on figures prior to 2007 – which were growth years.  LAEDC data produced at the time of Measure R indicated that a 0.5% sales tax would generate $630M per year in 2006, which seemed to inform initial projections.  Actual Measure R receipts have been lower (http://www.metro.net/about/financebudget/taxes/) because of the economic downturn.

    Some (rough, 20 minute) spreadsheet financial analysis yields information about why R+ is necessary to not only accelerate Measure R projects, but to complete them.  In order to hit $40B in nominal dollars committed in the expenditure plan, (http://www.metro.net/measurer/images/expenditure_plan.pdf), sales tax receipts will need to grow an average of 5.2% per year between 2012 and 2039.  While growth like this would be very nice, there’s a high probability that average growth will be lower than 5.2%.  If that’s the case, Metro will need more money to construct the Measure R projects.  Where can that money come from?  Measure R+.
    Assuming a 3% growth rate on 2011 Measure R receipts and current 30-year municipal bond interest rates 3.16% nominal interest rate yields:

    > Measure R might actually be worth ~$28B rather than $40B (nominal over 30 years)
    > The Net Present Value of Measure R (2009 to 2039) is actually $16.4B, versus an expected $22.2B if Measure R was actually worth $40B (nominal).  Net present value is what Metro would get if it borrowed against future Measure R receipts to accelerate projects.  So there’s about $5.8B gap that needs to be covered.> The Net Present Value of Measure R+ (2039 to 2069) is $15.6B (my projections).  If LA county hits 5.2% growth, the NPV will be $40B).> Measure R+ produces ~$9.8B NPV in excess of the current Measure R gap.  That can mean more or expanded projects, like Sepulveda Pass Rail and more Metrolink improvements.  Of course, it can also go to fill in gaps if projects end up costing more than initial projections (this tends to happen a lot).My takeaways from this mini-study are that municipal debt is cheap right now, and Metro should take advantage of this opportunity.  If municipal debt rates increase, this will erode the NPV of Measure R+, making it more challenging to complete Measure R Projects (even if they don’t have cost overruns) and to construct additional projects.

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